Today’s employers are offering a growing array of voluntary benefits to their staff members. It’s easy to see why these plans are well received by employees and employers. They expand the menu of benefit choices at discounted rates to employees (compared to what they would pay on the individual market) and at little or no cost to the company.
One issue that is frequently overlooked when bringing a voluntary benefit program into the workplace is ERISA compliance with ERISA (the Employee Retirement Income Security Act). Many employers assume that any voluntary benefit plan for which employees shoulder the entire premium cost is outside of ERISA’s reach. Not so. Department of Labor (DOL) regulations and legal precedent determine what does and does not constitute an ERISA-governed “employee welfare benefit plan.”
ERISA broadly defines an “employee welfare benefit plan” as any plan, fund or program established or maintained by an employer for the purpose of providing participants and their beneficiaries with certain types of benefits, through insurance or otherwise. DOL regulations exclude from this definition certain types of workplace programs and practices.
Exclusion from ERISA
Employee welfare benefit plans do not include a group-type insurance program under which:
1. No contributions are made by the employer.
2. Participation in the program is completely voluntary for employees.
3. The employer’s sole functions with regard to the program are — without endorsing the program — to permit the insurer to publicize the program to employees, to collect premiums through payroll deduction and to remit these premium payments to the insurer.
4. The employer receives no consideration, in the form of cash or otherwise, in connection with the program, other than reasonable compensation, excluding any profit, for administrative services actually rendered in connection with payroll deductions.
Information or Endorsement?
A voluntary benefit program that meets all four of these requirements will not be considered an ERISA plan. But what these requirements mean is not always clear, especially when applied to a particular situation. For example:
What actions can an employer take to inform employees about a new voluntary benefit program “without endorsing the program?”
If employee communications about the program have an employer logo on them, has the employer endorsed the program?
What if the employer includes information about the program in a booklet with information on its health plan and pension plan, which are — and are intended to be — employer-sponsored, ERISA-governed plans?
What message is the employer sending and what message are employees getting about the employer’s role in the program?
Plans that fall under ERISA trigger various reporting, disclosure and fiduciary responsibilities for an employer. If an employer mistakenly believes that a particular program is not subject to ERISA, and consequently fails to do what is necessary to comply with the law, it can run into lawsuits and penalties down the road.
Thus, from the moment an employer begins to consider bringing a voluntary benefit into its workplace, you should understand exactly what your company can and cannot do with regard to that benefit program if you want to avoid making the program subject to ERISA. Employers certainly can have more than a minimal level of involvement in a voluntary benefit program, but they must realize that these programs most likely will be subject to ERISA and, accordingly, take steps to comply with the requirements of that law.